By financen | May 14, 2012 - 4:20 pm - Posted in Stock Market

Millions of people already have their own ISA, but if you are completely clueless when it comes to stocks and shares ISAs, don’t worry. This guide offers you a beginner’s introduction to the subject to give you an overview of what they are and some key points you need to know if you are thinking of investing.

  • What is a stocks and shares ISA?

First of all, let’s look at what a stocks and shares ISA is. Essentially, it is a type of investment account that invests the money you put into it in the stock market. Depending on the specific account you get, it might invest in different types of companies.

Then, if the shares your money is invested in grows, you will earn dividends. These dividends can then be reinvested or you might be able to withdraw them, depending on the specific account you have.

  • What is the annual savings limit?

One really important point about the stocks and shares ISA is that there is an annual limit as to how much you can put into your account. For the current tax year (2012/13), you can save up to £11280 in your investment ISA. Alternatively, you can also save up to have of that amount in a cash ISA. It’s also worth remembering that you can only open one new stocks and shares ISA per tax year, and even though you can hold multiple ISAs, the £11280 limit is the overall limit for all of your ISAs.

  • What are the risks?

Now let’s have a look at the risks of the stocks and shares ISA. As we have already seen, it is a type of investment in the stock market. This means that as well as the potential to earn dividends, your money can also go down as well as up. This will depend on the performance of the stock market. You are usually recommended to save for the long term with a stocks and shares ISA to give your money the best chance of growing.

  • What are the benefits?

One big benefit of this type of account is that it is tax-free. This means that if you earn dividends on your money, you won’t have to pay any tax on them. This is one of the main reasons these ISAs are so popular with investors.

Also, if you choose the best stocks and shares ISA you can find, the fund will be very careful about where they invest your money to give it the best possible chance of growth. The flexibility of being able to save part of your annual allowance in the form of cash is another benefit that appeals to many people.

  • How do I choose an account?

When you are trying to choose the best stocks and shares ISA for your needs, it is important to do some research to see what is out there and the kind of account that might work for you. As well as past performance of the fund, look at things like the terms and conditions, the fees attached, how easy it is to access your money and the reputation of the provider to ensure that your investment has the best chance of success.

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